15 Jul Growth Of Australian Online Business Lending Continues
Online business lenders seem to be popping up fairly regularly and will keep pace as more businesses move their accounting data into the cloud.
A quick Loandesk survey identified six new entrants in the last twelve to eighteen months with two of these preparing to be released later this year, which includes Kikka Capital and OnDeck which has been reported to be 30% owned by MYOB.
Tech savvy business lenders have been attracted to the higher yields, largely underserviced by the banks for loans under the one hundred thousand dollar mark.
We see three key reasons why online lending has become attractive:
- The application and underwriting process at many banks remains document intensive, confusing and time confusing for smaller loan amounts.
- Small business lending seems to be one of the last markets that needs tackling by some very smart people to provide automated, advanced analytics and risk underwriting.
- Cloud accounting providers are pushing users to store data in the cloud to grab hold of reoccurring revenues, that is effectively the all Seeing Eye for business activity and provides key underwriting data to base loan decisions on.
Although I’ve included a few lenders in the survey that I would not truly consider to be an online lender, there’s no doubt that they are in development to move to this model. To be categorised into online lending, the sign-up and application process must be 100% online.
We’ve identified one lender that goes a few steps further than the rest, Sydney-based Waddle provides borrowers with an offer on sign-up and upon acceptance allows the borrower access to the funding dashboard to complete the process. Unlike other lenders we see using cloud accounting data to validate the user obtaining a single snapshot in time, Waddle is utilising the accounting and bank feed data on-going to monitor business health, adjusting the amount of credit available to the borrower in real-time eliminating the need to re-apply. Waddle does have some barriers, you can only use the service if you’re on cloud accounting storing data in the cloud, have bank feeds enabled and does not cater for retailers.
Speaking with a number of small business owners who turned to startup lenders disclosed a clear sentiment that most of them switched because their banks lending criteria was either to onerous or would take too long to complete. Taking the path of least resistance is a common theme and turning to Google to find a lender is increasing or using business loan market-places like Loandesk was growing in popularity.
Lenders will get smarter & use your social data
Speaking with another lender, I discovered that they were preparing to integrate social account monitoring which is already being utilised by some U.S lenders such as Kabbage. Monitoring sites like LinkedIn, Facebook, Trip adviser etc., the lender can gauge the current business sentiment like declining user reviews; social frequency or determining how long accounts have been operating versus how long the business states it’s been trading. Businesses with strong data in these areas will be rewarded with higher loan approvals and possibly cheaper rates. Lenders will use this data for on going risk analysis, one possible use is decline in reviews over a designated period could potentially stop losses or prevent further loan advances from a sudden predicted drop in cash flow.
It’s good but not great for borrowers
The harsh reality is a lot of these lenders fill a gap in the market-place and remain expensive compared to bank loans. Lenders are still fine tuning their risk models and to a very large extend most of them have never been through any economic downturn to stress test their underwriting skills. As time passes and more lenders go live, we should see some rate cuts as lenders fight for market share. In the short term, if you can qualify for a bank loan and have the patience and security to offer up, you’ll still get the best deal.
Not all of these start-ups will survive. But while they are all competing for your business, you will be surprised at how easy it has become to get a loan quickly, relatively paperless and pain-free.
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